Making sense of China’s economic transformation

Abstract

China’s sustained rapid economic growth in the post-1978 reform era, which is also the era
of capitalist globalization, is of worldwide importance. This growth experience has been based
mainly on China’s internal dynamics. In the first half of the era, economic growth was driven by
improvement in both allocative efficiency and productive efficiency. From the early 1990s until
the present time, however, economic growth has been increasingly based on dynamic increasing
returns associated with a growth path that is characterized by capital deepening. In both
periods, the growth paths and their associated institutional frameworks appear to contradict
principles of the free market economy: the mainstream doctrines of globalization. In the form of
an analytical overview, this paper seeks to explain and interpret the dynamics and developmental
implications of China’s economic transformation. The analytics draws on a range of relevant
economic theories including Marxian theory of capital accumulation, post-Keynesian theory of
demand determination, and Schumpeterian theory of innovation. It is posited that these alternative
theoretical perspectives offer better insights than mainstream neoclassical economics in
explaining and interpreting China’s economic transformation.